If you're considering incorporating your business, but you're unsure as to whether or not it's the right path to take, this article should provide you with the key points you need to consider
When you incorporate your business, you're legally separating it from yourself and officially giving it a separate legal identity.
Before incorporation, you as the owner of the business, personally own the assets of the business. But, far more importantly, you are also personally responsible for its debts and liabilities. This means that if your business fails, your own personal assets are at risk!
Therefore it may be a significant benefit to you, if you decide to incorporate your business as you will protect your personal property and assets.
After becoming incorporated, you will only be personally liable for amounts owed by the business up to the amount you have invested in the business.
Beyond your invested capital, you will have no further personal liability for the settlement of debts owed to your business's creditors, unless of course, you have signed separate personal guarantees for any specific loans or debts.
Personal guarantees may be necessary where your business has little trading history, or where your balance sheet is not robust enough to provide sufficient guarantees to lenders.
There is also another benefit of incorporation. Another point to consider is that following incorporation, your business is protected from your own personal debts and cannot be damaged by your own credit problems.
You should also be aware that, should for any reason your incorporated business cease to trade, all of its creditors and liabilities must be paid before you receive any of your invested capital back. Basically, in times of trouble, shareholders are always the last in line for repayment.
Your decision to incorporate your business is a very important one, particularly if you're expecting to expand your business in the future. Incorporated companies will often find it easier to raise new capital required for expansion from financial institutions.
Incorporating your business sends a message to the financial world that your business will be around for the long term, and that feeling of security makes it easier to find additional finance.
Becoming incorporated also allows you to transfer ownership of your business easily. Separation of the business's assets and liabilities from your personal assets makes it easier to value your business. Incorporating your company simplifies the use of retirement plans and insurance schemes.
Once incorporated, your company is governed by its Board of Directors. The Directors are elected by the shareholders, who then act as agents of the company on behalf of the shareholders.
Finally, business tax rates are much lower than personal tax rates. There are some issues of double taxation to consider though. Whilst there may be tax benefits, there will be some additional legal costs and administration costs associated with being an incorporated company to consider.
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